Prices have been rising 6 percent a year for twenty years.The nominal rate of interest is 12 percent.The real rate of interest is
A)4 percent.
B)6 percent.
C)10 percent.
D)12 percent.

Question

Quizplus · Accepted Answer

To calculate the real rate of interest, we need to adjust for inflation. Using the Fisher equation, we can find the real rate of interest:
Real rate = Nominal rate - Inflation rate
Inflation rate = 6%
Nominal rate = 12%
Real rate = 12% - 6% = 6%
Therefore, the real rate of interest is 6 percent.

Prices Have Been Rising 6 Percent a Year for Twenty